Reasons to Short Sale a House

The seller schedules home showings by a real estate agent in a short sale.

A short sale allows a borrower to sell a home to another person for less than the money outstanding on the mortgage. The lender then may cancel the remaining debt. The borrower typically obtains a real estate agent to list, show and sell the home as a short sale. Any purchase offers made to the homeowner and his agent must be approved by the lender.

Less Credit Damage

The damage to your credit rating is typically less after a short sale than after a foreclosure, according to Tamara E. Holmes of Bankrate.com. The way the lender reports the short sale will impact your credit rating. Some lenders report the mortgage loan as discharged after a short sale, while others note the debt was settled for less than was owed, which is more damaging to your credit. You may owe the lender the difference between what your home sells for and the mortgage balance owed, depending on your state of residence. Your lender may allow you to insert a clause in the short sale documents forbidding the lender from trying to obtain the difference from you. A foreclosure action--where the bank uses legal proceedings to enforce payment of the mortgage loan by seizing and selling the home at public auction--has a more negative impact on your credit rating and stays on your credit report for at least seven years.

Personal Control

A foreclosure action is initiated and dictated by the lender and the laws governing the proceedings in your state. You will be evicted either during or immediately after the foreclosure process ends. A short sale is structured like a conventional home sale. The real estate agent you choose will list the home, show the home to prospective buyers and involve you in the process from start to finish. The lender will specify a short sale time frame, like six months, giving you more time to pack and find a new place to live than a foreclosure typically would. Foreclosures can be completed in under three months, depending on where you live.

New Mortgage Eligibility

You are eligible for a new, low-interest home loan insured by the Federal Housing Administration and backed by Fannie Mae within two to three years after a short sale. A borrower who goes through foreclosure is barred from qualifying for a Fannie Mae loan for up to seven years after the action.

Financial Benefits

Falling home values in your area and a high mortgage payment are other reasons to short sale a house. Paying a mortgage with a balance that is significantly higher than the value of your home is a risky investment, since the home values in your neighborhood may not rise to their former levels. A high mortgage payment can drain you financially and lead to foreclosure down the road. A short sale will allow you to sell your home if the mortgage payments are no longer affordable or your home has dropped in value.

About the Author

Anna Assad began writing professionally in 1999 and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.